Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
When OFAC issues new guidelines organisations need to act fast
15 August 2019
OFAC recently announced its Reporting, Procedures and Penalties
Regulations (RPPR) that outlined the
recordkeeping and auditing functions for trade financiers and
others to follow and adhere to.
The RPPR notice states that trade financiers must now report
rejected transactions to OFAC if they could be prohibited by
sanctions. This is a new requirement for trade finance departments
to implement as part of their day-to-day activity. Previously there
was no obligation to report a rejected trade but that has now
changed. This new requirement has recently undergone its review
period (ended on July 22nd) and is now awaiting any
final amendments of modifications.
Whilst OFAC reviews comments and possibly initiates amendments,
they have already taken the request for information regarding
rejected transactions seriously. For example, the delivery of
accurate and complete information to the regulator and diligence in
the handling and review of documentation are now coming under the
compliance and regulatory microscope.
Southern Cross Aviation was engaged in a communication with OFAC
regarding helicopters being shipped to Iran via an 'Iranian
businessman'. OFAC issued a subpoena requesting certain documents
and material but was ultimately unimpressed with the Southern Cross
response. Hence, an OFAC finding of violation of the RPPR.
For DNI Express Shipping, a similar violation was also raised
concerning farm machinery being transported to Sudan. OFAC
mentioned in their finding a series of misleading and contradictory
statements and responses to their requests for information relating
to the transaction. Again a violation of the RPPR notice.
Both organisations were deemed to have shown a reckless
disregard for US sanction requirements. Even so, no penalty fine
was issued but the enforcement action highlights 'the compliance
obligation of persons subjected to RPPR and the need to cooperate
with OFAC investigations'.
Its highly likely that there will be further violations of the
RPPR published by OFAC. There is a strong correlation between the
OFAC RPPR announcement in June and the two findings of violation
issued due to the amended RPPR in August.
What the two company examples above reiterate, is the need for
organisations to be compliant with OFAC but also to have procedures
in place that collate and document the transaction screening
process.
For most banks and financial institutions who work quickly and
at scale with each trade transaction, the management of documents
can sometimes fall between the cracks. A high-volume trade business
requires an appropriate level of screening and a process that can
be documented and audited in case of future requests by OFAC. For
organisations screening hundreds and thousands of transactions per
day, an integrated workflow solution that provides the ability to
create notes, show how the bank's hierarchy deals with potential
sanction issues and monitors and collates the changing workflow
regarding export shipments is imperative.
Without such a workflow in place it becomes extremely difficult
to comply successfully with a request for information during an
OFAC investigation. Whilst RPPR seems to be a highly technical,
minor change it is in reality very important as both Southern Cross
and DNI Express Shipping have found out.
Posted by Byron McKinney, Associate Director Maritime &
Trade Product Management, IHS Markit